The Best Way to Play Cryptocurrencies Like Bitcoin and Ethereum

Cryptocurrencies have been on fire, but there are smarter ways to play

It’s been a pretty rough ride from cryptocurrencies like bitcoin and ethereum so far in 2018.

If you’re the buy-and-hold type, perhaps this little drawdown hasn’t phased you one bit. After all, bitcoin prices may be at $11,250 — down massively from the near-$20,000 level they were approaching just a month ago — but that’s still up more than 10-fold from where they traded a year ago.

So what gives? Is it time to fold on crypto, or do we dig down and buy ethereum, ripple, bitcoin and others?

Those who follow me (or those who don’t, but care to look at my work) will know that I’m not a cryptocurrencies trader. In fact, I have never purchased a cryptocurrency in my life. That’s not to say I am a total non-believer, however.

I find it hard to believe that something like bitcoin will go on the replace all of our fiat currency in the future. But the technology it’s built on — blockchain — is an important development in my view.

Bitcoin Bubble

There’s too much “bubbliness” in cryptocurrencies. Companies that change their name are adding hundreds of millions or even billions of dollars to their market cap. Even though some of these stocks are coming back to earth, it still doesn’t mask the lunacy.

We recently explored whether bitcoin was a bubble — and even asked if a bubble was a good thing. I mean, just look at some recent examples: Riot Blockchain Inc (NASDAQ:RIOT) was a biotech company. It changed its name and made some minor moves in the crypto space and its stock went soaring. RIOT is still up some 400% since September.

There’s Crypto Co (OTCMKTS:CRCW), which at one point had a market cap over $12 billion. Now though, it’s “just” $3.5 billion. Heck, Long Island Iced Tea Corp changed its name to — no joke — Long Blockchain Corp (NASDAQ:LBCC). Shares are still up about 150% over the last five weeks. Even Eastman Kodak Company (NYSE:KODK) is in on it!

Four Stocks To Buy Instead Of Cryptocurrencies

If you’re looking to invest in cryptocurrencies, why not buy shares of International Business Machines Corp. (NYSE:IBM) instead?

The company is utilizing blockchain technology, mainly with banks and logistics. But it has the power to leverage the new technology in many ways that are hard for us to fully comprehend. Further, the stock trades at just 11 times earnings, reported its first quarterly revenue growth in more than five years and pays out a 3.5% dividend yield.

There’s other plays, though. A few months ago, Square Inc (NYSE:SQ) introduced a pilot program on its Cash app that allowed certain users to buy and sell bitcoin. After what we assume was a successful start, the company expanded its pilot program. While admittedly this is a minor way to play bitcoin, it hasn’t stopped investors from ramping SQ stock in the past. Plus, the company has a compelling earnings and cash flow story to work with.

While he argued that this could lead to “false purchases” and hurt AMD (thus downgrading the stock) there are still short-term positives. Despite the recent fall in cryptocurrencies, remember that most are still up massively over the past 12 months. That means miners won’t be too hesitant to keep on mining, which is good for AMD and NVDA.

The Bottom Line

Recent crackdowns in South Korea and India makes bitcoin open to violent swings. The news in general makes cryptocurrencies susceptible to wide price swings. And while traders will get the most beta playing these assets directly, it’s too volatile for many investors.

At least with the stocks above — AMD, NVDA, SQ and IBM — there’s some other form of business to fall back on. I would rather play bitcoin, ethereum and others through these four names, but that’s just me.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.